Trends

Blazing Trails to Indian Prosperity Anyone who believes in the benevolent potential of government should take a look at the hapless 755,000 American Indians whose lives are entangled with the Bureau of Indian Affairs (BIA) and various tribal governments. These people live under a cradle-to-grave welfare state that would put Sweden to shame. "They're the most overregulated group in society," Occidental Petroleum executive Bob Robertson explained to REASON—and no other group in the United States has such a low income, high suicide rate, and inadequate education. But recently, there have been two small rays of hope: both a presidential commission report and a nationally broadcast TV documentary have dissected Indians' economic problems and suggested a way out.

The President's Commission on Indian Reservation Economies was co-chaired by Occidental's Robertson, and its package of recommendations included some that would reduce Washington's role in reservation economies. In the light of the federal government's abysmal record, it would have made sense for the commission to suggest an out-and-out end to Washington's malevolent benevolence. Unfortunately, they didn't go that far; indeed, they called for an infusion of more federal loans and grants for economic development of reservations and a streamlining of programs already in place. Even so, many of their conclusions point in a promising direction and deserve consideration.

For example, the commission pointed out that tribal governments, because they're trying to be both business people and politicians, are often an enormous obstacle to economic development. "The failure to separate governmental from corporate functions results in a confusion of goals," the report noted. "Using tribal enterprises as instruments of political patronage contributes to their failure. Siphoning away investment capital from tribal businesses weakens the capacity of business to expand." Thus, the commission spoke favorably of privatizing ownership and management of tribal enterprises. Where the tribes continue to own businesses, the report suggested that corporate functions be freed from political interference by the tribal governments.

The commission took note of another big problem. Businesses interested in building facilities on reservations are often worried about "dual taxation" by both the tribal government and the relevant state government. The problem could be alleviated, according to the report, with new legislation permitting reservation residents to vote on whether to grant tribal governments exclusive taxing authority on reservations.

The commission discussed other reforms, including resource management. Indians have legal title to a wealth of natural resources, mainly in the West, but the Interior Department manages the resources, ostensibly for the Indians' benefit. The commission didn't explicitly say so, but government has none of the incentive for prudent and rational management that a private enterprise does in a market economy—and in this case, it is the Indians' property that suffers as a result. The commission did recommend, however, that Interior's role be limited to protecting the Indians' legal ownership of the land, with decisions on managing and use of resources shifted to the Indians' hands.

Is the commission's emphasis on the positive potential of Indian entrepreneurship justified? A recent documentary called The New Capitalists: Economics in Indian Country suggests that it is. Broadcast last October on PBS and narrated by Eric Sevareid, The New Capitalists described Indians' problems in vivid detail—but it also told of some of their little-known economic successes. For example, the Choctaw Indians in Mississippi run an industrial park with some 500 employees. A salmon cannery in Alaska is operated by 300 Metlakatla Indians. And the Indian-run Fort Apache Timber Company in Arizona turns out millions of board-feet of lumber and generates millions of dollars in economic activity.

In the documentary, a leader of the Ak Chin tribe recounted that his tribe's irrigation proposal had been turned down by the BIA as impractical. He said, "We told BIA it could be done. And we did it without their assistance." Sevareid concluded, "In the end it will be the Indians themselves who will determine their economic future." It is a lesson also alluded to in the report of the presidential commission, and Washington would do well to take it to heart.

Heresy in the Temple of Organized Medicine In the temple of pork-barrel gluttons, the medical establishment has a special shrine. It funnels millions of dollars in campaign contributions to politicians (some $4.2 million distributed by political-action committees for the 1982 elections, and that doesn't include vast amounts doled out by individual doctors). It gets its money's worth—a system of professional licensing that means the supply of medical services is limited, the cost of health care is inflated, and the medical industry is shrouded in secrecy that would make Greta Garbo envious. On the whole, licensure has been an immensely effective means for redistributing income—from patients to doctors. But now, there's a group posing a challenge to that system. It's called the People's Medical Society (PMS).

The PMS is a consumerist organization, and it understands that free-market principles can be some of the most effective weapons in the medical consumer's arsenal. Accordingly, one of the group's biggest goals is deregulation of the medical profession. It even distributes "Deregulate Doctors" buttons, and the organization has published a study by Lori B. Andrews, called Deregulating Doctoring: Do Medical Licensing Laws Meet Today's Health Care Needs? The answer to that question, according to Andrews, is no, because licensing "increases the cost of health care services and tends to freeze the standards."

Andrews considers several paths to reform. How about trying to change doctors' perspectives by adding new requirements in medical schools? She considers that to be inadequate and costly. Expanding state licensure to cover a larger number and variety of health-care practitioners "would cause an enormous state expense, initiating an incredible bureaucracy." Andrews does suggest that it might be minimally useful for states to limit the definition of the practice of medicine—that is, the activities the state heavily regulates—so that it would not prohibit people from advising, recommending, and suggesting treatments and remedies (which activities, she urges, ought to be protected by the First Amendment in any event).

The best solution, according to Andrews, would be abolishing the current system of mandatory state licensing altogether. Borrowing a page from free-market thinking, Andrews writes, "This presumably would allow consumers to gravitate toward those health care providers who would offer the most appropriate therapies for their medical needs." She believes that the government should have a far more modest role in health care, limited to (1) voluntary certification for health-care providers who want the credentials while other providers could still practice freely, and (2) requiring certain kinds of disclosure to consumers from all health-care practitioners.

The PMS does not confine its efforts to such theorizing, as valuable as it is. It is also making available to its members and other consumers a People's Medical Library with references ranging from the AMA Family Medical Guide to Rodale Press encyclopedias of natural healing and home remedies. The organization is also distributing Physician Evaluation Forms to its members, who then report back on how they rate the quality of care they receive from their doctors, how long they have to sit in doctors' waiting rooms, whether they believe the doctors overcharge, and whether they would recommend their doctors to other PMS members. The PMS will collate this information in an annual report.

Doctors, for the most part, are scandalized. In Private Practice, a generally conservative magazine for doctors, a Pennsylvania psychiatrist warned his colleagues that PMS "is rooted in deep antagonism to the medical profession and to medical science itself." He seemed outraged that the PMS distributes a fact sheet telling members how they can complain about medical treatment and that it had the audacity to ask doctors to comply voluntarily with a temporary freeze on fees originally requested by the American Medical Association.

It's too early to know how successful the David-like PMS can be against the Goliath-like medical establishment. But it does appear that the fledgling organization's slingshots are in good working order and often on target.

Flowing Toward the Marketplace The San Diego Water Authority, because it is using common sense, is making waves. The authority has come to recognize just how inadequate the current system of allocating water in California is, and the water officials have concluded that an open market in water would be a far more sensible alternative. With two centuries of literature in free-market economics to back it up, this might seem like a natural conclusion. But in fact, it's a very radical view, not at all what one hears from the run-of-the-mill water authority in California.

That's because an open market in water simply doesn't exist in California, nor in much of the rest of the West. Instead, there is, as the Los Angeles Times described it, an "intricate network of laws that has governed the allocation of water in the Southwest for generations." Put less gently, it is a mishmash of local, state, regional, and national laws that makes Rube Goldberg contraptions look streamlined and efficient. Some water users get far more water than they need, others far less. The system's rigidities are painfully apparent to a booming area like San Diego County that needs the flexibility to purchase water where it can.

So San Diego County's water officials last year tried to bypass the system. They bought an option from a private Colorado firm called Galloway Group Ltd. to buy up to 500,000 acre-feet of water annually for 40 years. The water would come from the Yampa River, a tributary of the Colorado River where Galloway owns water rights, and it is water that, according to the Times, currently runs down the river unused. Galloway was happy, since it anticipated making a profit, and the San Diegans were relieved that they might have a 40-year water supply.

But the deal was scotched when the Upper Colorado River Basin Commission voted unanimously that Galloway couldn't sell its water to San Diego. An indignant Felix Sparks, who represents Colorado on the commission, raged, "Any thought that we will sell our birthright downstream simply for money is totally abhorrent to the people all along the Colorado." Of course, the Yampa River water at issue isn't really the birthright of Sparks, the commission, or hardly any of the other fine people all along the Colorado. It's the property of Galloway—but Sparks and his fellow moralists on the Basin Commission were not concerned with such piddling details. They have their own rickety system for divvying out Colorado River water called "the Law of the River," and they will brook no tampering with it. If San Diegans and other consumers dehydrate, so be it.

But the San Diego County officials were not discouraged by Sparks and company. Even though Galloway cannot deliver on its option with the San Diegans—at least not for the time being—they renewed the option when it expired.

It's interesting that in the wake of the San Diegans' effort, the idea of buying and selling water is seeping around California. More and more, potential sellers as well as potential buyers (like San Diego) recognize the advantages of a water market.

For example, a consortium of four counties in northern California recently asked the San Diegans if they'd be interested in buying extra water from a proposed new dam and reservoir on the Consumnes River. The northern counties knew that a deal with San Diego would help them get financing for the dam and reservoir. And the Imperial Irrigation District of California wants to get into the act. Every year, it wastes as much as 438,000 acre-feet of water, partly because of spillage and seepage from unlined irrigation canals.

Last December, though, the district approved a deal with Parsons Corporation, a private construction firm in Pasadena, in which Parsons would do all the construction work on new water-conservation facilities. A good amount of water would be saved as a result, and Parsons would get an annual cut of the district's sales of that water.

Even the Los Angeles Times, which is ordinarily as fond of fundamental change as it is of malaria epidemics, seems favorably disposed toward a water market. "No one was very happy with the way San Diego jolted the water establishment through its free-lance dealing with Galloway," it editorialized—but it admitted that "San Diego's approach recognized the reality of the limits of new water development in the West and the momentum behind the concept of marketing water as a commodity like wheat or oil."

Maybe the edifice of governmental water regulation is slowly eroding after all. If so, the indefatigable San Diego County Water Authority deserves a lot of the credit.

Health Care Costs Ease With Market Medicine So politicized is the issue of health-care costs that it's become a popular assumption that the way to contain rising costs is some political action. For instance, we saw not one but five cost-containment propositions on Arizona's ballot last fall (all of which voters rejected). And many observers are pointing to the federal government's 1983 Medicare-payment reform as a model for further policy changes.

In all the hubbub about one sort of political "solution" or another to the health-care-cost problem, the power of the market to deal with such supposed crises is often ignored. Yet recent developments show that the market itself is indeed responding to the perceived problem of too-expensive health care.

Concern over rising costs has stimulated a surge of innovation in the health-care industry, which has brought down prices. In a recent article on this phenomenon, Industry Week magazine noted that many businesses and most major insurance companies are adopting a number of cost-containing reforms in employee health-insurance plans, "such as increased deductibles, mandatory second opinions, and incentives for joining cost-effective health plans such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs)."

Two private health-care companies, National Medical Enterprises and Humana, Inc., have introduced alternatives to traditional health-insurance programs, Industry Week further reported. By the end of 1984, NME had signed up more than 60 California firms, covering about 4,000 employees, for its "Health-Pace" program, through which "doctors, hospitals, and other providers contract to accept alternative payment at prenegotiated rates"—thereby reducing physicians' fees by 20 percent and hospital charges by 30 percent. Meanwhile, Humana had signed up more than 600 companies for its plan, Humana Care Plus, which guarantees "that health-care benefit-plan costs will not grow by more than the Consumer Price Index for a period of up to four years," Industry Week said.

Moreover, insurers are leaning hard on physicians and hospitals to lower costs. The Blue Cross & Blue Shield Association, for example, reported that its cost-containment programs saved BCBS subscribers $6 billion last year. And BCBS of Northern Ohio has saved $33 million since late 1983 from its hospital admissions screening program.

The growing pressure to lower health-care costs is not without its occasional drama. Physicians and hospitals in Ohio felt some real heat recently, for example, when Blue Cross & Blue Shield of Northeast Ohio solicited bids from area hospitals and announced that it would sign contracts with 25 of the hospitals but wouldn't do business with the rest. (For its customers who go to the 25 contracted hospitals, Blue Cross will fully reimburse charges, but for those who go to the losing 9 hospitals, the insurer will directly reimburse patients only 70 percent of their hospital costs; thus the losing hospitals must collect from the patients and decide whether to accept 70 percent as full payment or make patients fork over the balance.) The Wall Street Journal reported that Northeast Ohio Blue Cross chief executive John Burry, Jr., thinks that hospitals that have to compete for his firm's business will be more efficient.

If that sounds as if the entire health-care market is headed for cut-rate pricing, with hospitals forced to banish amenities, don't despair. Many will certainly go that route, but as a recent Associated Press report demonstrated, the market tailors itself to nearly all preferences—and pocketbooks. AP writer Susanne Schafer detailed the luxury service available at Suburban Hospital in Bethesda, Maryland. The 375-bed hospital's VIP wing features 13 private, elegantly appointed rooms, "some with conference rooms or suites attached so that families can stay with the patient or meetings can be held during the patient's stay." A gourmet chef plans the meals, which are served on china.

Innovations in health care are not limited to payment schemes and service arrangements. New approaches to the practice of medicine itself are likely to figure into this trend. As "geriatric evaluation units" (GEUs) catch on, for example, more elderly may avoid much special care, thus putting downward pressure on Medicare and private-insurance costs. According to a recent Veterans Administration study reported in the New England Journal of Medicine, only 13 percent of elderly patients who spent time in a GEU—a special hospital unit designed to make them well enough to live on their own—had to enter nursing homes, while 30 percent of elderly patients who didn't spend time in a GEU did have to go to nursing homes. Moreover, the first group's death rate during their first year out of the hospital was half that of the latter group. With widespread availability, GEUs could keep 200,000 people a year out of nursing homes and prevent many deaths, according to the VA.

There is a health-care market—and the prescription for it to work best simply is: let it work.

GLOBAL TRENDS Swiss Who Don't Miss Public Schools Novaggio Switzerland—A growing number of people in Switzerland are becoming concerned about the large bureaucracy and the political logrolling in their public-school system. Some of them are now trying to avoid the system altogether, and they're succeeding.

Education here is controlled by each individual canton (state). Thus, when a family moves across canton lines, its children's new school may have not only a different language of instruction but also a different curriculum, different lengths of cycles for primary and secondary education, and even different starting times for the academic year (some cantons start the school year in the fall, others in spring). Moreover, cantonal authorities exert political pressures by defining the curriculum and allocating funds, just as the village and town councils do when they appoint teachers.

Declining school enrollments have only exacerbated the problem. In all but the major urban centers, teachers are being laid off, purse strings tightened, and entire schools closed down in a process often involving local referenda and messy legal appeals by teachers. All in all, this has often resulted in an adversary relationship between parents on the one hand and educational authorities, schools, and teachers on the other.

So it isn't surprising that some parents have decided to take a much more active role in their children's education. Not content with sending them off to private schools, which are subject to regulation by cantonal boards of education, a handful of parents have started to teach their own children or have them taught privately.

One such experiment was started in 1982 by Dr. L.A. Crespo and a small group of like-minded parents. It works simply enough: several families pool together to hire the services of private teachers. The tuition fee is set by dividing the cost of teachers' salaries and a few extra items by the number of children attending. Every three months, classes are rotated among the homes of those families having enough space for a classroom.

The advantages of Crespo's system are, in purely practical terms, that almost all of the tuition paid by the families goes toward instruction and nothing for rent or building maintenance. Beyond that—and more important educationally—parents who have taken the education of their children into their own hands will be able to nurture and foster the values that they themselves hold high.

At one point, Crespo and his friends were harassed by their canton's department of public instruction. The department warned them to discontinue their experiment under pain of legal sanctions. The courageous parents defied the threat and met with the head of the department. Armed with a legal brief, they argued that their system is actually exempt from public law. The department has not been heard from since.

The school continues to operate to the satisfaction of students, teachers, and parents. End-of-year examinations have show achievement considerably beyond that expected at state schools. And the children have time to cultivate other interests such as learning to play at least one musical instrument, participating in competitive sports, and studying ballet.

Crespo is clearly pleased that his system is now educating a total of 17 children, all of them near his home in the Rhone Valley. He told REASON, "In looking back to the first days of our experience, I can say that the only difficulty in putting theory into practice was psychological. The biggest obstacle lies in one's head."

He continued, "You have to overcome the feeling that if you go off the beaten path, the sky is going to fall on your head. Once this is overcome, the rest is easy, and most of the practical problems are easily solved."

—Theo E. Brenner

Rejecting the Collectivist Temptation Europe—For decades it seemed that no one in Europe took classical liberal ideas of individualism and limited government very seriously. Both on the left and on the right, a powerful state that owned, or at least directed, the economy was assumed to be desirable and inevitable. But recently, political debate in Western Europe has been transformed.

The change was discussed in a Wall Street Journal article last December by noted author Jean-François Revel and Branko Lazitch. "Today the reluctance to trust the state and the greater faith in the creativity of private entrepreneurship is shared by both the right and the left—except for the Communists," they pointed out. "Capitalism as such is accepted, under the label 'liberalism.'"

Liberalism's new respectability extends even to intellectual circles where Marxism once reigned. "Ten years ago most scholars, students, political writers and journalists regularly quoted Marx, Mao, Marcuse, Galbraith and Sartre. Their most conservative author was Keynes," Revel and Lazitch wrote."Today those names have disappeared, and the fashionable ones are Hayek, Schumpeter, von Mises, Friedman and Debreu."

The transformation extends to politicians. Prime Minister Mario Soares of Portugal is interested in promoting private enterprise and private banking. France's new prime minister, Laurent Fabius, wants a lower income tax and fewer corporate taxes, and he speaks favorably of profitability. Italian prime minister Bettino Craxi eventually won a yearlong battle to abolish the automatic indexing of wages to prices that had helped fuel his nation's inflation for decades. Yet Soares, Fabius, and Craxi are all ardent socialists.

There is other evidence that the advent of liberalism isn't just talk. The International Herald Tribune recently surveyed three types of liberal reforms already accomplished or in the works—denationalization, deregulation, and contracting out of government services.

As for denationalization, Britain's sale of the government-owned telephone company British Telecom is the latest in a series of sales. Italy is selling off its interest in an industrial holding group and the national oil company. West Germany is reducing its share in the energy consortium Veba, the nation's largest company. And all three of France's chief opposition leaders—ex-president Valery Giscard d'Estaing and ex-prime ministers Raymond Barre and Jacques Chirac—have said that they would denationalize not only the companies nationalized by the Mitterrand government in 1982 but also some that were nationalized decades ago by their mentor. Charles de Gaulle.

Deregulation is making its mark as well. For example, financial markets are being deregulated in Britain, Germany. and Switzerland, and airline regulation is falling by the wayside in several markets. (Both are acknowledged as responses to competitive pressures caused by US deregulation.)

Finally, contracting out is increasingly attractive to local governments who must trim their budgets. "The competitive edge of private enterprise over state-run enterprises is rarely contested," the Tribune noted. In Britain, municipal sanitation services in Birmingham are contracted out, and Prime Minister Margaret Thatcher is pushing for privatization of nonmedical services in the National Health Service. In Germany, several Bavarian towns contract out (for example, Straubing realizes a 50 percent savings having private contractors manage its public housing).

In their Wall Street Journal article, Revel and Lazitch warned that old statist habits in Europe won't evaporate suddenly. "The only sure thing we can say is that from now on the mainstream has begun to run in the opposite direction," they concluded. "For the first time an overwhelming majority of Europeans want to keep an open society and reject the collectivist temptation."

Making the Price Right France—Who do French people think is their nation's top inflation fighter? In a recent poll, 40 percent of the respondents didn't say François Mitterrand, and they didn't say any of the conservative politicians angling to run against him in the next presidential elections. Instead, their answer was Edouard Leclerc, a man virtually unknown elsewhere but whom many French citizens consider to be the consumer's best friend.

Leclerc is the head of Centres Leclerc, a vast retailing empire that includes some 500 supermarkets and discount stores with annual sales of $5 billion—and profits of $140 million. The former Jesuit seminarian owes his enormous success to his large-scale discounting. According to a recent report in Business Week, Leclerc gets cost concessions from suppliers at prices two to seven percent less than his competitors, and he passes savings on to consumers. When suppliers are resistant, Leclerc knows what to do. For example, Leclerc took Kronenbourg beer—produced by the largest brewery in France—off of the shelves of his stores for three months until the brewery agreed to let Leclerc sell Kronenbourg at a discount.

It's interesting, and a bit ironic, that Leclerc has garnered the cautious support of the socialist Mitterrand government. Faced with high unemployment and a moribund economy, Mitterrand's technocrats are relaxing some of France's anticompetitive laws. A government official even told Business Week, "Basically we agree with many of the things that Leclerc is trying to do in the way of modernization [of the economy]."

Before Leclerc, discounting was virtually unheard of in France. Indeed, ever since the medieval trade guilds, there have been French laws banning discounting, but Leclerc isn't daunted. After fighting the age-old law's in the French courts, he has asked the European Court of Justice in Luxembourg to overturn a number of the French restrictions on discounting. "If Leclerc wins, there will have to be a major transformation in French distribution," Michel Drancourt of the Institut de l'Entreprise, a free-market think tank, told Business Week. It wouldn't come a moment too soon.